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Cadence (CDNS) to Report Q4 Earnings: What's in the Cards?

Zacks Equity Research

Cadence Design Systems Inc. CDNS is set to report fourth-quarter 2018 results on Feb 19. Notably, the company has surpassed the Zacks Consensus Estimate in three of the trailing four quarters while coming in line in the remaining one, recording positive earnings surprise of 9.3%.

Cadence delivered non-GAAP earnings of 49 cents per share for the third quarter, surpassing the Zacks Consensus Estimate by 8 cents. The figure surged 40% from the year-ago figure of 35 cents.

Under the old accounting standard, revenues increased 8.4% year over year to almost $526 million. Under ASC 606, the company reported revenues of $532.5 million comfortably beating the Zacks Consensus Estimate of $518 million.

Robust adoption of the company’s digital and signoff, custom and analog, IP solutions and ever expanding customer base drove year-over-year growth.

Cadence Design Systems, Inc. Price and EPS Surprise

 

Cadence Design Systems, Inc. Price and EPS Surprise | Cadence Design Systems, Inc. Quote

What to Expect?

For fourth-quarter 2018, Cadence expects total revenues under ASC 606 in the range of $545-$555 million and non-GAAP earnings in the range of 46-48 cents per share.

The Zacks Consensus Estimates for revenues and earnings are pegged at $550.8 million and 48 cents, respectively. This indicates revenues and earnings growth of 9.8% and 23.1% year over year, respectively.

The company raised 2018 outlook. Revenues are now projected in the range of $2.113-$2.123 billion, up from $2.07-$2.09 billion anticipated earlier. Non-GAAP earnings are now guided in the range of $1.80-$1.82 per share, raised from the previous band of $1.64-$1.70.

The Zacks Consensus Estimate for revenues and earnings are pegged at $2.12 billion and $1.82 per share, respectively.

Factors At Play

Robust adoption of Cadence’s digital and signoff, custom and analog, IP solutions and expanding customer base remains a positive.

Further, increasing investments on emerging trends like Internet-of-things (IoT), augmented and virtual reality (AR/VR) and autonomous vehicle sub-systems present significant growth opportunity for the company.

Further, Cadence is focusing on providing end-to-end solutions, which rapidly reduces the time required to introduce a semiconductor product in the market. In this regard, the company's frequent product launches and enhancements bode well.

Cadence recently unveiled Tensilica HiFi 5 DSP solution featuring accelerated neural network (NN) and audio processing. Advanced speech recognition processing enables voice-controlled UIs suitable in automotive infotainment devices and smart home assistants.

The company’s Cadence Tensilica DNA 100 Processor IP offers both high performance and power efficiency across a full range of compute from 0.5 TeraMAC (“TMAC”) to 100s of TMACs.

Notably, with Cadence Cloud, the company aims to offer a comprehensive cloud portfolio enabling the development of semiconductors and other electronic systems.

The company has collaborated with Microsoft’s Azure, Amazon’s Amazon Web Services (“AWS”) and Google Cloud platform to enable smooth design development of electronic systems and semiconductors.

Furthermore, the company’s Cloud-Hosted Design Solution achieved Industrial Software Competency status from AWS.

Management is optimistic about the order strength in Palladium Cloud solution which offers cloud-based emulation capacity as per the customers’ demand.

We believe the innovative cloud-ready solutions broaden the company’s portfolio in an effective manner. The significant number of customer wins, strong collaborations and other repeat orders are expected to bolster the top line. Significant demand from aerospace and defense sectors remains a tailwind.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP.The Sell-rated stocks (Zacks Rank #4 or 5) are best avoided.

Cadencecurrently has a Zacks Rank #3 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks with Favorable Combination

Here are some stocks that are worth considering as our model shows that these have the right combination of elements to deliver an earnings beat in the upcoming releases.

Athene Holding Ltd. ATH has an Earnings ESP of +3.52% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Diamondback Energy, Inc. FANG has an Earnings ESP of +1.10% and a Zacks Rank #3.

CubeSmart CUBE has an Earnings ESP of +1.24% and a Zacks Rank #3.

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